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Are Social Security Benefits Taxed

Number Of Recipients 19742020

Is Social Security Taxable?

The Supplemental Security Income program provides income support to needy persons aged 65 or older, blind or disabled adults, and blind or disabled children. Eligibility requirements and federal payment standards are nationally uniform. SSI replaced the former federal/state adult assistance programs in the 50 states and the District of Columbia.

Payments under SSI began in January 1974, with 3.2 million persons receiving federally administered payments. By December 1974, this number had risen to nearly 4 million and remained at about that level until the mid-1980s, then rose steadily, reaching nearly 6 million in 1993 and 7 million by the end of 2004. As of December 2020, the number of recipients was about 8.0 million. Of this total, 4.6 million were between the ages of 18 and 64, 2.3 million were aged 65 or older, and 1.1 million were under age 18.

The History Behind The Taxation Of Social Security Benefits

The path to taxing Social Security benefits begins all the way back in the 1970s. When the 1970s began, Social Security’s trust fund ratio — a measure of a year’s projected costs that could be paid with funds available at the beginning of the year — stood at a relatively healthy 103%. But things quickly went downhill as demographic changes took shape.

By 1975, the program was expending more than it was bringing in each year, a trend that would continue through 1982. By 1982, the trust fund ratio was down to a meager 15%. In other words, Social Security was running on fumes, and while the program can’t go bankrupt, it was very close to a point where across-the-board benefit cuts would have needed to be instituted to maintain solvency. With so many Americans reliant on Social Security income to make ends meet, benefit cuts weren’t viewed as a viable solvency option. Thus was introduced the last major bipartisan Social Security overhaul, the Amendments of 1983.

However, one of the more controversial additions to the Amendments of 1983 was the introduction of taxing Social Security benefits, which was officially implemented in 1984. This tax, which was originally designed to only impact upper-income senior households, was introduced to help raise additional revenue and avoid having to cut retired-worker benefits.

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  • You May Like: Estimated Social Security Benefits When I Retire

    A Couple Of Concernstaxes And Medicare Premiums

    This all sounds like good news so far, but you should also be aware that continuing to work past 70 could cost you a bit more in taxes and Medicare premiums.

    • Required Minimum Distributions increase your taxable incomeIf you have traditional retirement accounts, you must take an RMD at age 70½ or 72 depending on your birthday. This is considered ordinary income and could possibly push you into a higher tax bracket, especially as you continue to earn other taxable income. Not only would that possibly increase your income tax bill, you’d also most likely have to pay taxes on your Social Security benefits as I describe next.
    • Increased income may make your Social Security benefits taxableThe percentage of your Social Security benefits subject to income tax will depend on your annual income. Currently, if you’re a single filer and make $25,000 to $34,000, up to 50 percent of your benefits may be taxed for income over $34,000, up to 85 percent of benefits may be taxed. Current limits for married filing jointly are $32,000 to $44,000 and over $44,000 respectively.
    • Higher income might mean higher Medicare Part B and D premiumsSimilarly, you may be charged more for Medicare premiums if you earn over a certain amount. For 2022 those thresholds are $91,000 for single filers and $182,000 for married filing jointly. However, if you still have healthcare coverage through an employer, you may be able to delay taking Part B and possibly Part D.

    How Much You Earn

    Taxable Social Security Calculator

    This last requirement is the kicker: You must have paid maximum Social Security taxes for 35 years or more. To do that, you would have had to earn income equal to or higher than Social Security’s taxable maximum.

    The taxable maximum is always a big number. In 2022, it’s $147,000. Next year, it’ll be $160,200.

    The 2022 threshold of $147,000 is more than two and a half times the median annual salary for U.S. workers, which is $55,640. It’s an incredible accomplishment to earn that six-figure max in one year. In 2020, only 6% of the working population hit that mark.

    Sadly, a much smaller slice of the population will reach that threshold 35 times or more.

    Also Check: Chapter 7 Medicare Benefit Policy Manual

    Simplifying Your Social Security Taxes

    During your working years, your employer probably withheld payroll taxes from your paycheck. If you make enough in retirement that you need to pay federal income tax, then you will also need to withhold taxes from your monthly income.

    To withhold taxes from your Social Security benefits, you will need to fill out Form W-4V . The form only has only seven lines. You will need to enter your personal information and then choose how much to withhold from your benefits. The only withholding options are 7%, 10%, 12% or 22% of your monthly benefit. After you fill out the form, mail it to your closest Social Security Administration office or drop it off in person.

    If you prefer to pay more exact withholding payments, you can choose to file estimated tax payments instead of having the SSA withhold taxes. Estimated payments are tax payments that you make each quarter on income that an employer is not required to withhold tax from. So if you ever earned income from self-employment, you may already be familiar with estimated payments.

    In general, its easier for retirees to have the SSA withhold taxes. Estimated taxes are a bit more complicated and will simply require you to do more work throughout the year. However, you should make the decision based on your personal situation. At any time you can also switch strategies by asking the the SSA to stop withholding taxes.

    Income Taxes And Your Social Security Benefit

    Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits .

    You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service rules. If you:

    • file a federal tax return as an “individual” and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.
  • are married and file a separate tax return, you probably will pay taxes on your benefits.
  • Recommended Reading: Documents Needed To Apply For Social Security Retirement Benefits Online

    Whos Eligible For Social Security Disability Insurance

    In addition to meeting the disability requirements, you must have worked long enough and recently enough to qualify for Social Security Disability Insurance.

    First, you must meet the work test. This test is based on Social Security work credits and requires you to earn at least a minimum amount of income in wages or self-employment income per calendar year. For each $1,470 in wages or self-employment income that you earn per year you earn one credit. You can earn up to four credit per year. When youve earned $5,880 in 2021, youve earned your four credit for 2021.

    Typically, you need at least 40 credits with 20 of these earned in the last 10 year period ending with the year of your disability. However, meeting the work test requirement can also depend on your age. It requires different amounts of Social Security credits since younger workers typically have not had enough time in the workforce to earn the full 40 credits. For those:

    • Under age 24: You meet the work test if you earned 6 credits in the 3-year period when your disability began.
    • Age 24 to 31: In general, you may qualify if you have credits equivalent to working half the time between age 21 and becoming disabled.
    • Age 31 or older: Youll need to have earned at least 20 credits in the 10-year period immediately before becoming disabled.

    Second, review the Social Security Administrations table to determine if you meet the duration of work test based on your age and when your disability began.

    How Much Of My Social Security Is Taxable In 2021

    How to pay less in taxes on your Social Security benefits

    Single filers with a combined income of $25,000 to $34,000 must pay income taxes on up to 50% of their Social Security payments for the 2021 tax year . If your total income exceeds $34,000, you may be required to pay taxes on up to 85% of your Social Security payments.

    Similarly, How do you determine how much of your Social Security is taxable?

    Calculating Social Security Benefits That Are Taxable Its not as simple as 0 percent, 50%, or 85%. If you earn less than $25,000 per year as a single person or $32,000 per year as a couple, you will not be taxed. Taxable income ranges from $25,000 to $34,000 for a single person and $32,000 to $44,000 for a couple. If you earn more than $34,000 for a single person or $44,000 for a couple, youll be taxed up to 85%.

    Also, it is asked, What is the income limit before Social Security is taxed in 2021?

    If you and your spouse file a joint return and have a combined income of between $32,000 and $44,000, you may be required to pay income tax on up to 50% of your benefits. $44,000 or more: Its possible that up to 85% of your benefits may be taxed.

    Secondly, At what age is Social Security no longer taxed?

    You reach full retirement age at 65 to 67, depending on your birth year, and may receive full Social Security retirement benefits tax-free.

    Also, What is the federal tax rate on Social Security?

    On earnings up to the appropriate taxable maximum amount, the Social Security share is 6.20 percent .

    Related Questions and Answers

    Don’t Miss: When Do I Qualify For Social Security Retirement Benefits

    This Bill Could Make Social Security Taxes Could Be A Thing Of The Past

    Social Security is one of the cornerstone programs of the American Social Safety net even if it doesnt always completely cover a persons retirement expenses, it gives everyone something to build off of when planning for their golden years. One thing some people may not realize, though, is that Social Security payments are taxed even though the money is from the government to begin with. A new bill, though, may change that.

    For help planning your retirement, including factoring in Social Security, consider working with a financial advisor.

    Taxes on Social Security: Current Law

    As of 2022, Social Security payments are generally taxable. To see if will pay taxes on your Social Security, youd need to first find your combined income using the following formula:

    Combined Income = Adjusted Gross Income + Nontaxable Interest + 1/2 of Social Security benefits

    If that number is above $25,000, youll have to pay some tax if you are a single filer, head of household or qualifying widow or widower with a dependent child. The limit is $32,000 for married couples filing jointly. The exact amount of your Social Security benefit you pay taxes on depends on your total income, but it caps out at 85% of your benefits.

    Some individual states also tax Social Security income. Make sure you check your state laws.

    Taxes on Social Security: New Proposal

    To make up for the lost revenue, Craig is proposing raising the cap on Social Security payroll taxes from $147,000 to $250,000.

    Continuing To Work Past Your Fra Could Increase Your Benefitsdepending

    So will your monthly benefit go up if you continue to have earned income? That might be the case if your current salary is higher than one of your 35 highest-earning years to date. Here are a couple of examples.

    First, let’s say that you earned the maximum taxable income each of those 35 years. If so, you’re already entitled to the maximum benefit. So while there may be a lot of other positive reasons for continuing to work, it won’t get you a higher monthly Social Security payment.

    But now let’s say you earned less in the early part of your career and earnings in one or more of those years were lower than the maximum annual taxable income. If what you’re earning now is higher than what you earned in one of your past 35 highest-earning years that have been indexed for wage inflation, your current higher income will replace one of the lower-earning years.

    Since Social Security benefits are recalculated yearly, this added income could result in a higher monthly payment. But because there are 35 years of income included in the calculation to determine income over your remaining life expectancy from Social Security, you may not see much of a difference in your monthly payment. Fortunately, Social Security payments are adjusted for inflation, so every little increase can add up over time.

    Also Check: How To Calculate My Social Security Benefits When I Retire

    What Is Supplemental Security Income

    Social Security Disability Insurance benefits and SSI benefits differ based on who receives them and why. SSI recipients do not need to meet the same disability or work credit requirements like those who receive Social Security Disability Insurance benefits.

    Generally, SSI payments go to the elderly, blind, or disabled. Also, SSI benefit recipients often qualify for Medicaid assistance automatically.

    Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.

    Is Social Security Disability Taxable

    13 States That Tax Social Security Benefits

    You may need to pay taxes on your Social Security Disability Insurance benefits. This can happen if you receive other income that places you above a certain threshold. But, because SSDI requires you to be disabled and have limited income to be eligible, you might not have other income to exceed this threshold.

    Common examples for when your Social Security Disability Insurance benefits may be taxable are if you receive income from other sources, such as dividends or tax-exempt interest, or if your spouse earns income. If this describes your situation, you will need to know the thresholds for when your SSDI becomes taxable.

    The IRS states that your SSDI benefits may become taxable when one-half of your benefits, plus all other income, exceeds an income threshold based on your tax filing status:

    • Single, head of household, qualifying widow, and married filing separately taxpayers: $25,000

    For example, if you are married and file jointly, you can report up to $32,000 of income before needing to pay taxes on your SSDI benefits. If you earn more than these limits for these tax filing statuses, you have two different benefit inclusion rates that can apply.

    For 2021:

    • As a single filer, you may need to include up to 50% of your benefits in your taxable income if your income falls between $25,000 and $34,000.
    • Up to 85% gets included on your tax return if your income exceeds $34,000.

    For married couples who file jointly, you’d pay taxes:

    Read Also: How To Apply To Social Security Benefits

    Only In Certain States Or If Your Income Exceeds The Federal Limits

    A Tea Reader: Living Life One Cup at a Time

    Social Security disability benefits may be taxable if you have other income that puts you over a certain threshold. However, the majority of people who receive Social Security benefits do not have to pay taxes on their benefits because most people who meet the strict criteria to qualify for the program have little or no additional income.

    How Are Social Security Benefits Taxed

    Social Security benefits have been subject to income taxes since 1983. However, the amount of benefits taxed varies depending on the combined income and filing status.

    Typically, the amount of benefits subject to federal income taxes should not exceed 85% of the total benefits. For single filers, Social Security taxes up to 50% for income thresholds of $25,000 to $34,000, and up to 85% if the income exceeds $34,000 annually. For married filing jointly, Social security taxes up to 50% for income thresholds of $32,000 to $44,000, or up to 85% if the income exceeds $44,000 annually.

    While states like Texas and Florida do not charge state income taxes on Social Security benefits, there are states that levy state-level Social Security income taxes. However, states that impose Social Security income taxes have higher income thresholds than the income thresholds at the federal level. For example, Kansas residents earning below $75,000 do not pay state-level Social Security taxes.

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